Savers have been thrown a lifeline by the Post Office, which has announced the
launch of the third issue of its popular Inflation-Linked Bond.

The new issue, available to customers from today until Friday January 20, 2012, offers a choice of a three-year fixed-term bond that offers annual RPI inflation rate plus 0.25 percentage points or five-year fixed bond that offers annual RPI inflation rate plus one percentage point.

Either bond can be opened with a single deposit of £500 up to a maximum of £1 million with the return calculated annually and paid at maturity. No additional deposits are permitted and the account cannot be accessed until the end of the fixed term.

The rate of return is based on the annual Retail Price Index (RPI), which includes the cost of mortgage interest payments and has historically run at a higher level than the Consumer Price Index (CPI) rate.

For example, the annual RPI rate in August 2011 was 5.2pc. If this product had been available the year before - and used August RPI readings as the basis for the return - the annual return for the first year would be 6.2pc, RPI of 5.2pc plus one percentage point for the five-year bond, or 5.45pc, RPI of 5.2pc plus 0.25 percentage points for the three-year bond.

However, Michelle Slade of Moneyfacts.co.uk, pointed out that the rate of inflation is only set once a year in January and while inflation is likely to be high in this coming year, it may be much lower in the future.

“If savers main concern is beating inflation then these accounts are a good option, but when inflation falls and base rate rises savers could find themselves locked into an account that is less competitive than the rest of the market,” she said.

Richard Norman, director of savings and investments at the Post Office, said: "Since we launched the first Inflation Linked Bond earlier this year, inflation has remained high, leaving savers worried about the value of their hard earned cash. This new issue of the Inflation Linked Bond offers them another chance to get peace of mind that their savings will be protected against the eroding effects of inflation.”

Mr Norman warned that this type of bond has proved hugely popular in the past, so urged interested savers to get applications in as quickly as possible.

“We will aim to open bonds for as many applicants as we can, but funds are strictly limited and we may need to withdraw the bond before the official closing date if it is oversubscribed,” he said.

Applications must be made by post and application packs can be requested by calling 0800 169 7500 or downloaded online at www.postoffice.co.uk/savings.